Archive for April, 2016

2016’s Dirty Dozen Scams

Wednesday, April 6th, 2016

(from the February 17, 2016 Journal of Accountancy article by Sally P. Schreiber, J.D.)

Every year the IRS releases a list of what it calls the worst tax scams of the year. Beginning February 1 and ending on February 17, the IRS issued a news release each day highlighting scams.  These “dirty dozen” scams can be encountered any time of year, but the IRS reports that they peak during tax season.

  1. Identity Theft.

According to the IRS, the No. 1 scam this year is tax-related identity theft. This is defined as someone using a taxpayer’s stolen Social Security number to file a tax return claiming a fraudulent refund. Although the IRS has introduced more effective screening and detection systems designed to detect identity theft before it issues a refund, the Service admits it is still a major problem.  To fight this more effectively, over the past year, the IRS has participated in a Security Summit initiative in partnership with states and the tax-preparation industry to try to improve security for taxpayers. The participants share information of fraudulent schemes that have been detected this filing season to provide increased protection. More than 20 data elements are used, unknown to taxpayers, to verify tax return information.


In addition, the IRS urged taxpayers to protect their own information so it’s harder for thieves to breach the IRS’s security systems.


  1. Phone Scams.

Phone scams are when a criminal calls impersonating the IRS.  Many times they disguise the number they are calling from so it appears to be the IRS or another agency, and they may threaten arrest, deportation, or license revocation. The scammers sometimes use IRS titles and fake badge numbers to appear legitimate and use the victim’s name, address, and other personal information, which makes the call sound official.


The IRS says taxpayers should be aware that the IRS will never call to demand immediate payment, call about taxes owed without first having mailed a bill, call to demand payment without the opportunity to question or appeal, require use of specific payment method, ask for credit card or debit card information over the phone, or threaten to bring in local police or other law enforcement.


  1. Phishing. Another scam that continues to appear high on the list is “phishing,” in which taxpayers get unsolicited emails seeking financial or personal information.  A taxpayer who receives a suspicious email should send it to  Scam emails can also infect a computer with malware without a taxpayer knowing it, often enabling the criminals to access sensitive files or track keyboard strokes, exposing login information.


  1. Return preparer fraud. Return preparer fraud involves dishonest preparers who set up shot using filing season to perpetrate refund fraud, identity theft, and other scams, according to the IRS. The IRS warns taxpayers to be wary of “unscrupulous preparers who prey on unsuspecting taxpayers with outlandish promises of overly large refunds.”


Choosing a taxpayer carefully is very important.  You entrust them with your very private financial information and it needs to be protected.  The IRS provides a number of tips for taxpayers to choose competent preparers, including checking what the preparer’s credentials are, making sure the preparer will be available after filing season, and ensuring that the taxpayer’s refund is deposited into the taxpayer’s account, not the preparer’s.  The IRS recommends avoiding preparers who base their fees on a percentage of the refund or promise larger refunds than other preparers.

  1. Hiding money or income. Hiding money or income offshore is a major focus of IRS enforcement efforts.  There are legitimate reasons a taxpayer may have foreign accounts, but these trigger report requirements. The IRS offers a number of programs, including the Offshore Voluntary Disclosure Program, for taxpayers to come into compliance with these requirements.  The IRS noted that the heightened reporting required under the Foreign Account Tax Compliance Act, which went into effect in 2015, makes it even harder for taxpayers to conceal overseas assets.


  1. Inflated refund claims. Another scam that is closely related to return preparer fraud is inflated refund claims, which unscrupulous preparers set up shop to lure unsuspecting taxpayers. Be wary of outlandish refunds based on federal benefits or tax credits you’ve never heard of or weren’t eligible for in the past.


  1. Fake charities. Taxpayers are cautioned to check the Except Organizations on the IRS’s website to determine whether a charity is bona fide and qualifies for deductible contributions. Legitimate charities should be willing to give donors their EINs, which can be used to check if they are qualified on the IRS website. Fake charities often use the name similar to a well-known charity and may set up a fake website. They also can be used for identity theft purposes.  When a large-scale natural disaster happens, these fraudulent organizations tend to increase, and the IRS warns that taxpayers should not make any contributions without checking first.


  1. Falsely padding deductions. This consists of deceitfully inflating deductions or expenses on the return to pay less tax or receive a bigger refund. This item is new on the list this year. The IRS earns taxpayers that they should think twice before overstating their charitable contributions expenses or padding their business expenses, as well as avoid claiming credits they are not entitled to, such as the EITC and child tax credit. Taxpayers who do this may be subject to substantial penalties and may, in some cases, face criminal prosecution.


  1. Excessive claims for business credits. The next item on the list expands on last year’s excessive claims for fuel credits. This scam involves two specific false claims:  fraudulent claims for refunds of fuel excise tax and bogus claims for the research tax credit. The IRS says that its refund fraud filters are stopping a number of fraudulent fuel excise tax refunds this year.


  1. Falsifying income to claim tax credits. This usually involves falsely claiming higher earned income to qualify for the EITC, which is a refundable credit. Unscrupulous preparers often do this to get taxpayers larger refunds than they are entitled to. Even when taxpayers are unaware of these false claims, they are, as the IRS reminds, responsible for what is on their tax return. They can be subject to significant penalties, interest, and possible prosecution.


  1. Abusive tax shelters. These are defined as schemes using multiple flowthrough entities to evade taxes. They often use limited liability companies, limited liability partnerships, international business companies, foreign financial accounts, offshore credit or debit cards, and multilayer transactions to conceal who owns the income or assets.


The IRS also mentions misuse of trusts and captive insurance companies among the types of transactions taxpayers should avoid.


  1. Frivolous tax arguments. The IRS warns not to be talked into frivolous tax arguments. They involve claims such as that the only employees subject to income tax re employees of federal government or that only foreign income is taxable. Taxpayers should avoid unscrupulous promoters of false tax-avoidance arguments because taxpayers end up paying what they owe plus potential penalties and interest. The IRS reminds taxpayers that they would be automatically subject to the $5,000 penalty for frivolous tax positions.

Hey Parents: Don’s Miss Out on These Tax Savers

Wednesday, April 6th, 2016

Children may help reduce the amount of taxes owed for the year.  If you’re a parent, there are several tax benefits you should look for when you file your federal tax return:

  • In most cases, you can claim your child as a dependent. You can deduct $4,000 for each dependent you are entitled to claim.  You must reduce this amount if your income is above a certain limit.
  • Child Tax Credit. You may be able to claim the Child Tax Credit for each of your qualifying children under the age of 17. The maximum credit is $1,000 per child.  If you get less than the full amount of the credit, you may be eligible for the Additional Child Tax Credit.
  • Child and Dependent Care Credit. You may be able to claim this credit if you paid for the care of one or more qualifying persons.  Depending children under the age of 13 are among those who qualify. You must have paid for care so that you could work or look for work.
  • Earned Income Tax Credit. You may qualify for EITC if you worked but earned less than $53,267 last year. You can get up to $6,242 in EITC. You may qualify with or without children.
  • Adoption Credit. You may be able to claim a tax credit for certain costs you paid to adopt a child.
  • Education Tax Credits. An education credit can help you with the cost of higher education. Two credits are available.  The American Opportunity Tax Credit and the Lifetime Learning Credit may reduce the amount of tax you owe. If the credit reduces your tax to less than zero, you may get a refund. Even if you don’t owe any taxes, you still may qualify. You must complete Form 8863, Education Credits, and file a return to claim these credits.
  • Student Loan Interest. You may be able to deduct interest you paid on a qualified student loan.  You can claim this benefit even if you do not itemize your deductions.
  • Self-employed Health Insurance Deduction. If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid during the year. This may include the cost to cover your children under age 27, even if they are not your dependent.

Aspen Allan and Associates can help you determine what tax savers you qualify for.

Reporting Health Coverage on IRS Tax Forms

Wednesday, April 6th, 2016

While most taxpayers need to simply check a box on their tax return to indicate full health coverage for 2015, there are a few forms and specific lines on Forms 1040, 1040A, and 1040EZ that relate to the health care law.

The help navigate health coverage reporting, you should consider filing your return electronically.  Using tax preparation software is the best and simplest way to file a complete and accurate tax return.  It guides you through the process and does the math for you.  There are a variety of electronic filing options, including free volunteer assistance, IRS Free File for tax payers who qualify, commercial software, and professional assistance.  Here is information about reporting Health Coverage:

Form 8965, Health Coverage Exemptions

  • Complete this form if you need to claim a coverage exemption on your return or report a Marketplace-granted coverage exemption.
  • Use the worksheet in the Form 8965 Instructions if you need to calculate the shared responsibility payment.

Form 8962, Premium Tax Credit

  • Complete this form to claim this credit on your tax return, and to reconcile advance payments of the premium tax credit

Form 1095, Health Care Information Forms

  • If you enrolled in coverage through the Health Insurance Marketplace, you should receive Form 1095-A, Health Insurance Marketplace Statement, which will help complete Form 8692. Wait to file until you receive this form.
  • Your health coverage provider or your employer may furnish you with a Form 1095-B, Health Coverage, or Form 1095-C, Employer-Provided Health Insurance Offer and Coverage. You do not have to wait to receive these forms before you file your tax return.

Form 1040

  • Line 46: Enter advance payments of the premium tax credit that must be repaid
  • Line 61: Report health coverage or enter individual shared responsibility payment
  • Line 69: Report net premium tax credit if the allowed premium tax credit is more than advance credit payments paid on your behalf

Form 1040-A

  • Line 29: Enter advance payments of the premium tax credit that must be repaid
  • Line 38: Report health coverage or enter individual shared responsibility payment
  • Line 45: Report net premium tax credit if the allowed premium tax credit is more than advance credit payments paid on your behalf

Form 1040-EZ

  • Line 11: Report health coverage or enter individual shared responsibility payment
  • Form 1040EZ cannot be used to report advance payments or to claim the premium tax credit

Call Aspen Allan and Associates or visit for more information about the Affordable Care Act as it relates to you 2015 filing.

How to Get a Copy of Your Prior Tax Year Tax Information

Tuesday, April 5th, 2016

There may be many reasons that you would need a copy of your tax return from the prior year.  Transcripts are free and available for the most current tax year after the IRS has processed the return. You can also get them for the past three tax years.  If you don’t have your copy, the IRS can help.  Here are the types of transcripts to choose from:

  • Tax Return Transcript. A return transcript shows most line items from your tax return just as you filed it. It also includes any forms and schedules you filed with your return. However, it does not reflect changes made to the return after you filed it.  If you’re applying for a mortgage, most mortgage companies require a tax return transcript and participate in the IRS’s Income Verification Express Service program.  If you are applying for financial aid, you can use the IRS Data Retrieval Tool on the FAFSA website to import your tax return information to your financial aid application.  In both of these cases, you won’t have to request a transcript directly from the IRS.
  • Tax Accountant Transcripts. This transcript shows any adjustments made by you or the IRS after you filed your return. It shows basic tax return data, like marital status, type of return, adjusted gross income and taxable income, and other transactions such as payments you made.

Here’s how to get a transcript:

  • Order Online. The fastest way to get a Tax Return or Account transcript is through the Get Transcript tool available on Although the IRS temporarily stopped the online viewing and printing of transcripts, Get Transcript still allows you to order your transcript online and receive it by mail.  Just click the “Get Transcript by Mail” button to have a paper copy sent to your address of record.
  • Order by phone. You can also order by phone at 800-908-9946 and follow prompts.
  • Order by mail. To order your tax return transcript by mail, complete mail and either

Form 4506-T or Form 4506T-EZ.  Form 4506-T can also be used to request other tax records: tax account transcript, record of account, wage and income and verification of non-filing.

If you need an actual copy of your tax return, they are generally available for the current tax year and as far back as six years.  The fee per copy $50.  Complete and mail Form 4506 to request a copy of your tax return.  Mail your request to the IRS office listed on the form for your area.  If you live in a federally declared disaster area, you can get a free copy of your tax return.  Visit for more disaster relief information.

Plan ahead.  Delivery times for online and phone orders typically take five to 10 days from the time the IRS receives the request.  You should allow 30 days to receive a transcript ordered by mail and 75 days for copies of your tax return.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights.  Explore your rights and our obligations to protect them on